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2010] Derailing Penn Central 889 entitled. The Court should not have to sacrifice the rights of property owners in exchange for a regulatory takings analysis that is both easily applied and certain. IV. Out with the Old, In with the New: Replacing Lucas A. The Proposed Rule A choice between applying the Penn Central balancing test and paring the takings test down to the per se rules of Lucas and Loretto is inherently unsatisfactory. If the Court embraces the Penn Central balancing test, property owners will receive more protection than they otherwise would under the sole application of Lucas and Loretto. However, the test is vague and invites subjective decisionmaking. If the Court applies only the per se rules of Lucas and Loretto, it will finally have an analysis that provides certainty. The rights of property owners, however, would be seriously diminished. Fortunately, the Court need not choose between the two approaches. The Court should adopt a regulatory takings doctrine consisting solely of per se rules, but must replace Lucas with a new per se rule holding that a regulatory taking occurs if, due to the regulation, the property owner is unable to recoup his cost basis. Under this approach, the Court would get the best of both worlds by abandoning Penn Central in favor of per se rules that are also favorable to property owners. This would eliminate the vagueness of a balancing test while also providing property owners with ample opportunity to recover if a regulation severely infringes upon their property rights. Although the Court should continue applying Loretto, it is imperative that Lucas be replaced with a broader per se rule. Requiring that a regulation “den[y] all economically beneficial or productive use of the land” 116 before a taking occurs allows the government to regulate at will without having to worry about the effect regulations have on landowners because such a strict test would likely be impossible to satisfy. 117 The Court should move to guard property rights more robustly by replacing Lucas with the proposed per se rule, finding that a regulatory taking occurs if a regulation prevents the property owner from recovering his cost basis. The dispositive questions become whether 116 Lucas, 505 U.S. at 1015. 117 There are, to be sure, political repercussions for reprehensible conduct by elected representatives. However, regulations may have a beneficial effect on much of the population. The issue is not with the creation of such regulations, as they may very well be necessary, but instead with the need for those property owners adversely affected to be rightfully compensated as the Constitution requires.
890 The George Washington Law Review [Vol. 78:870 the owner is capable of recovering his original investment and, if not, whether the regulation is the proximate cause of that inability. Using a cost-basis recovery approach in regulatory takings inquiries is a practical option, as evidenced by its application by the Court of Federal Claims to determine the economic-impact, or diminution-ofvalue, factor of the Penn Central balancing test. Although the Supreme Court measures the economic-impact factor as the comparison of the fair market value of the property in the absence of the regulation and the fair market value of the property with the regulation, 118 the Court of Federal Claims has analyzed economic impact by comparing the value of the regulated property with the owner’s original cost basis. For example, in Walcek v. United States, 119 a takings claim was rejected even though the Clean Water Act prohibited the development of wetland property because, despite the diminution in value, the owners still had the ability to realize a return of “$305,031 over their total cash outlays.” 120 This Note proposes that the Supreme Court replace Lucas with a per se rule that adopts the Court of Federal Claims’ cost-basis analysis to determine regulatory takings claims. Under this approach, if the regulation proximately causes a reduction in property value so that the owner is unable to recover his cost basis, a Fifth Amendment taking has occurred and the property owner is entitled to just compensation. B. Measuring Just Compensation Using this proposed rule, just compensation would be measured as the difference between the property owner’s original investment and the value of the property after the regulation’s enactment. For instance, John purchased the trailer park for $400,000. Assume that five years pass and the property’s value appreciates to $475,000. The regulation banning trailer homes is then enacted and causes the prop- 118 See Gerald A. Fisher, The Comprehensive Plan Is an Indispensable Compass for Navigating Mixed-Use Zoning Decisions Through the Precepts of the Due Process, Takings, and Equal Protection Clauses, 40 URB. LAW. 831, 877 (2008) (“The comparison is expressed as a fraction, with the regulated value representing the numerator and the unregulated value representing the denominator. The fraction formed in this manner demonstrates the portion of the property’s value remaining following application of the regulation.”). 119 Walcek v. United States, 49 Fed. Cl. 248 (2001). 120 See id. at 267 (implementing the cost-basis approach to determining a regulation’s economic impact). The Court explained that it would be inappropriate to consider inflation because there is “no assurance that any investment, let alone an investment in property, will increase in value in lock-step with inflation.” Id. at 266.
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